Seeking a mortgage? Check out the hidden costs.

If you’re planning a mortgage, watch out for the hidden and unexpected costs. The whole business is an absolute maze, and where you may feel you have a good deal as regards a low interest rate, there may be other charges which will tip the balance overall. Tread carefully and check out the fine points. Here we aim to unveil some of the mysteries of:-·Arrangement Fees.·Exit Fees.·Extended tie-ins·Mortgage Advisers Fees·Higher Lending Charge·Annual Interest Calculations·Interest charged at month end.All these are in relationship to simply organizing a mortgage at a reasonable rate. Confused? Then let’s try to clarify things.Arrangement fees – There are a variety of ways in which the cost of arranging the mortgage is calculated. It is possible to obtain a fee-free deal, but you need to be aware of the options on offer. Some mortgage lenders, for example the Nationwide, Woolwich and Northern Rock, offer a lower rate in return for the payment of an arrangement fee.At the present time, for example, Nationwide’s 10 year fixed rate is 4.88. The arrangement fee to achieve this rate is £399. Their alternative fee free option is charged at 5.28. On a £125,000 mortgage you would pay £724.90 (assuming the fee was added to the mortgage) per month. Take the fee free choice and the repayment will be higher at £751.28 per month. That’s over £3000 extra paid out over the life of the mortgage.If fees are calculated as a percentage of the sum loaned the result could be a much higher repayment.If you expect to stay with the mortgage for the longer term, it’s unlikely that the fee free option is going to be the most economical.Exit fees – If you pay off your mortgage or transfer to another lender you will normally be charged for this. The Financial Services Authority is investigating these charges at present as they can vary between the £35 charged by Britannia, rising to £295 with the Alliance and Leicester. As the charge is meant to be in relation to the cost of administering the redemption process it will be interesting to learn the outcome of the investigation.Extended tie-ins - As an example, if you applied for a mortgage with the Portman at the present time there is a fixed rate on offer at 1.79; an excellent rate BUT it only runs until May 2008 at this rate. After that date you have to switch to their standard variable rate for the next four years. If you decide to move mortgages before that time is up, there would be an exit fee to pay which equates to 7 of the balance of mortgage in the first year, reducing to 6, (2nd Year), 4 (3rd year) and in the last year 2.Higher Lending Charge - Should you have a problem in raising the initial 10 deposit on your property, and need to borrow this too, this is where the higher lending charge comes in. Effectively this is an insurance policy, designed to protect the lender if you are unable to continue with payments on your mortgage and there are insufficient funds from the sale of the property to cover the balance outstanding on your mortgage. Unfortunately if your property has to be repossessed and there is an overall shortfall, the lender would be paid out of the proceeds, leaving you with a debt owing to the mortgage company. They would certainly take action to recover this money.The Nationwide, Northern Rock, Cheltenham and Gloucester, HSBC and the Woolwich are amongst lenders who do not apply the higher lending charge.We wouldn’t recommend the higher lending charge and many lenders have stopped offering them. The alternative is a higher loan-to-value mortgage with a higher interest rate but we feel it’s preferable to the higher lending charge.This charge used to be known as a Mortgage Indemnity Guarantee.Charging interest at the month end - Beware of this one! If you’re switching your mortgage, you may get caught in the trap of paying two lots of interest in the month in which the switch is carried out. Some building societies, the Stroud and Swindon and the Skipton being examples, calculate interest to the end of the month. Other lenders may charge from the beginning of the month. The thing to do is to organize the switch to take place near to the month end, to improve the situation.Annual Interest Calculations – Where interest is calculated on a daily basis, the repayments are immediately credited and interest is paid on the exact balance. This is the usual method used; however a few building societies, the Portman Building Society and the West Bromwich Building Society being two of the better known ones, charge you interest basing their calculations on the amount owing at the start of the year. You then pay interest on money already repaid in previous months. Careful with this one!Mortgage Advisers Fees – There are literally thousands of mortgages on the market. A mortgage broker will take into account your personal situation, and then come up with a selection of mortgage suggestions and the all important calculations. Your home is probably the most important and expensive purchase you’ll ever make (until the next time!) and undoubtedly it’s prudent to seek the advice of an experienced broker.Fees for this all important service may be charged at a flat rate, or it’s possible that the broker may charge a percentage of the mortgage. It may be that the fee will be paid by the lender but whatever the arrangement it’s important to be aware of whatever charges there are likely to be before you proceed with the business.To summarize: As you’ll gather, there are various traps for the unwary and many ways of parting you with your hard earned money. Obtaining a mortgage is no longer the simple exercise it used to be. Make sure you use a reliable mortgage broker who will be aware of all these difficulties and will guide you through the maze.

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